CSR’s Viridian operations primed for further rationalisation

CSR’s glass acquisitions from the heady days of 2007 are expected to haunt the group again at its result update in May.

Publicly decried by CSR management as a blunder, the Viridian business has failed to deliver expected profits and its assets have been written down.

Viridian recorded an $11.7 million earnings before interest and tax loss for the half year to September 2012 – 69 per cent below the prior corresponding period. CSR announced a $22 million restructure in 2011 to invest in a new laminating line at Dandenong and cease producing “uneconomical" glass products.

But as the Australian dollar is expected to remain above US$1 for the foreseeable future,
CSR
management, led by chief executive Rob Sindel, is under pressure to take more drastic action.

CSR is said to be considering shutting down its older, less efficient NSW factory at Ingleburn and move all production to the more sophisticated Dandenong plant in Victoria.

Extra products could be imported to support demand if required, under the strategy under consideration.

The idea comes at a time when other listed building material groups have shifted to nearly a pure importation model for some materials including clinker.

CSR said it had “more work to do" on Viridian at its half-year result in November and this could be what it is alluding to.

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The brands that form Viridian are Pilkington Australasia and Don Mathieson & Staff Glass, which CSR bought for $690 million and $175 million respectively at the top of the market.

Sales of the division’s sustainable glass products were expected to underpinned by a government push to promote energy efficient building products.

When that support withered away, the strong Australian dollar, high fixed costs and a severe downturn in residential, and more importantly for the division, commercial construction have undermined restructuring efforts to date.

Commercial, higher-margin, construction activity remains key for Viridian’s profitability. At the time of the restructuring announcement in 2011, commercial building had dropped by around 20 per cent.

Commercial construction typically lags any recovery in Australia’s residential property market, which is only just showing signs it has bottomed.